Sterling will hold firm but not recoup recent losses in the coming year as a tepid recovery forces the Bank of England to step in with additional support for the economy, a Reuters poll showed on Wednesday.
The BoE is expected to pump another 50 billion pounds through its quantitative easing programme to support a fragile economic recovery, probably in November, on top of the 375 billion pounds it has already injected, forecasts showed last week.
The median outlook for sterling is stable, according to the poll conducted this week, with one pound seen getting you $1.61 in one month's time, and then $1.59 in six and 12 months. Median forecasts were revised up from a September poll.
Forecasts for the 12-month horizon ranged between $1.44 and $1.78, suggesting analysts were fairly uncertain about the outlook.
Sterling has traded between $1.42 and $1.67 for the last two and a half years. The pound rose above $2.10 in November 2007 but crashed to $1.35 in January 2009, during the worst of the global financial crisis.
The currency hit a near 13-month high over $1.63 late last month after UK borrowing data was better than feared but has since retreated, changing hands on Wednesday at around a three-week low of $1.61 after PMI data cast more doubt on the chance of a sustained UK recovery.
"I think sterling is vulnerable to any poor economic data that comes in the next few weeks," Societe Generale currency strategist Kit Juckes said. "It's hard to pick out a particularly optimistic sterling story unless we get some good data."
The economy contracted 0.4 percent in the second quarter, extending a recession that started late last year as output wilted under the pressure of government austerity and the euro zone debt crisis, marking Britain's second recession in four years.
Across the channel, the euro zone economy narrowly escaped recession earlier this year by stagnating in the first quarter but a raft of gloomy data has pushed economists to predict it has also entered a downturn.
The 17-nation bloc is Britain's biggest trading partner and any easing of the sovereign debt crisis is seen as positive for sterling, especially against the safe-haven dollar.
Against the euro sterling will gain ground, with one euro worth 79.9 pence in one month, 79.2p in six and 78.7p in a year.
"Sterling maybe got a bit over ambitious against the dollar, but I still think it's going to be stronger versus the euro going forward," Saxo Bank forex strategist John Hardy said. "There are still plenty of open questions about the euro."
The common currency was trading around a two-week high of 80.2 pence earlier on Wednesday, despite euro zone PMI data showing a worsening decline for euro zone companies last month, according to business surveys that dent hopes the economy will return to growth before 2013.
Both euro zone and UK central bankers will leave policy unchanged at their meetings on Thursday, but both will announce additional measures to help their moribund economies before the year's end, a Reuters poll showed last week.
The US Federal Reserve has slashed overnight borrowing costs to rock bottom and bought some $2.3 trillion in mortgage and Treasury securities in an effort to keep down long-term rates and stimulate investment.
It said last month it would buy $40 billion in mortgage-backed securities every month until the jobs outlook improved substantially as long as inflation remained contained.